Minnesota tax reform limping along after Senate vote

Blog Post by: Lori Sturdevant

April 30, 2013 - 1:18 PM

The Minnesota Senate’s base-broadening, rate-lowering tax reform is limping badly as it heads into conference committee to tangle with the more conventional DFL revenue-raising ideas of Gov. Mark Dayton and the state House.

The fact that it took two tries to pass the Senate’s $1.8 billion tax package Monday, and then by a tepid 35-31 vote, revealed weak support among suburban DFLers for reform ideas that have been faulted by Dayton as well as Republicans for pinching the middle class.

The beating the Senate bill took illustrates why economists’ advice to lower tax rates and broaden the range of tax-triggering activities has been so hard for politicians to follow. Reform inevitably creates winners and losers. It’s easy for political opponents to draw attention to the losers and blind voters to the winners.

On Monday, Republicans roundly condemned the addition of clothing, non-prescription drugs and personal grooming services to the sales tax base. Little mention was made of the fact that the bill would also reduce the state sales tax rate from 6.85 percent to 6 percent, and would offer low- and middle-income families a credit each year to balance the clothing tax increase.

Suburban DFLers also recoiled from the bill’s boost in income taxes for the top 7 percent of the state’s earners. Many of the people in that taxpaying cohort live in suburban districts.

Both the income and the sales tax features of the Senate bill will be hard sells in conference committee. Dayton reiterated Tuesday his desire to confine income tax increases to the top 2 percent and to leave the state’s sales tax untouched, as the House tax bill does.

Senate tax negotiators still have a chance to argue that broadening the sales tax base and expanding the income tax increase to more filers is superior tax policy. Those moves would give Minnesota more competitive tax rates and a more dependable revenue stream from the growing service sector of the economy.

But Monday’s try-try-again vote will accompany Senate conferees into negotiations, and may speak louder than they can.